AC Milan left in limbo over Chinese owner's debt default

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Italian football giants AC Milan are set to enter a new era, as an ill-fated spell of shady finances and poor performances under Chinese owner Li Yonghong comes to an end.

Li, who took over the club in April 2017 for 740 million euros (916 million US dollars), has failed to pay back a 32-million-euro loan (37.6 million US dollars) to American hedge fund Elliott Management.

This means that Elliott Management is in line to take over the club, with Li reportedly still scrambling to find a new buyer willing to take over the club and pay his debts.

With media speculation and confusion over the legal situation between Li and the US hedge fund heating up, fans have been left furious by the situation on and off the pitch, with AC Milan banned from the upcoming season’s UEFA Europa League tournament after failing to pass financial fair play rules.

Li’s tenure as AC Milan owner has been surrounded by controversy, with question marks continuously raised over his finances and how he was allowed to purchase the club in the first place.

Li Yonghong poses with former AC Milan president Silvio Berlusconi in April 2017. /VCG Photo

A 100 million euro deposit was paid from a Hong Kong-based business almost a year prior to Li's takeover being finalized, followed by three separate payments totaling 150 million euros (186 million US dollars).

The rest of the money was paid from a completely different Luxembourg-based company, and mostly funded by a 300 million US dollar loan from Elliott Management.

The terms of that loan, originally set to expire this October, saw Elliott Management charge interest as high as 11.5 percent, with Li pledging the team as collateral in case he was unable to pay his debts.

VCG P‍hoto

The club spent 128 million euros on players in 2017 – a respectable sum of money for a club of AC Milan’s size – but that money came from the Elliott loan.

Milan made losses of 90 million euros (105.8 million US dollars) in 2016, and concerns were raised over a new owner coming in using costly loans to finance a loss-making club that needed a significant cash injection.

Worries were also raised over the background of Li, a relatively unknown businessman outside of China. In 2013, Li was placed under investigation and fined 600,000 yuan (90,510 US dollars) by the China Securities Regulatory Commission for failing to make the details of a domestic deal public.

According to Shanghai Zhengquan -- a securities newspaper operating under Xinhua -- in 2004 Li’s father and brother received prison sentences over a pyramid scheme that defrauded hundreds of investors out of 43.02 million yuan (6.49 million US dollars). Li Yonghong has always denied involvement in the case.

After Li's failure to meet Friday’s deadline for repaying the 32 million euro loan, Elliott Management can now effectively take control of AC Milan.

The US hedge fund may choose to maintain control of the club in the short term before finding a new buyer, or look to sell straight away. Forbes reported on Saturday that the club could be sold off via auction.

Italian newspaper Il Sole 24 Ore reported over the weekend that Russian businessman and owner of French Ligue 1 club AS Monaco Dmitry Rybolovlev was interested in buying the Rossoneri, after US investor Rocco Commisso told Sky Sports Italia there was a 50-50 chance of him taking over the club.

However, question marks remain over whether new buyers would be doing business with Li or with Elliott Management, while fans will remain anxious over what lies in store for one of the most successful football clubs in Italian and European history.